PRETORIA (Reuters) - South Africa's state prosecutor dropped fraud charges on Monday against Finance Minister Pravin Gordhan, the latest twist in a police investigation that has rattled financial markets in the continent's most industrialized economy.
Worries that Gordhan could be prosecuted or even removed from his job have also increased the risk that credit rating agencies would downgrade South Africa to "junk" status, undermining efforts to revive economic growth.
The rand gained as much as 1.6 percent against the dollar, while bonds firmed as the head of the National Prosecuting Authority, Shaun Abrahams, read his decision at a media conference in the capital, Pretoria.
"I am satisfied that... Gordhan did not have the requisite intention to act unlawfully," Abrahams said, adding he owed nobody an apology and would not resign after the flip-flop on the decision to prosecute.
Gordhan was due to face charges in court on Wednesday that he fraudulently approved early retirement for a deputy tax commissioner and re-hired him as a consultant, costing the revenue service 1.1 million rand ($80,000).
Gordhan, who is widely respected in financial markets, said the accusations were politically motivated.
The charges triggered a backlash from opposition political parties, civil society, big business and some senior members of the ruling African National Congress (ANC). Abrahams denied any political interference in the probe.
Analysts and supporters of Gordhan say the charges could be a ploy by President Jacob Zuma and his allies to discredit a finance minister who stood in the way of their securing access to lucrative government contracts.
The president has denied that he is in conflict with Gordhan.
(Reporting by Joe Brock; Writing by James Macharia; Editing by Ed Cropley)